Theory of Constraints POOGI Part 65 You want me to do WHAT?

In Theory of Constraints we follow a process to improve. First we decide "what to change". To do this, of course, we need to agree on the problem(s). Once we have consensus on the problem we then work on the solution or "what to change to". And after that, we decide "how to cause the change".

It all sounds very straight forward and logical and it is. This process does work, but at times it can prove to be challenging -- especially when we don’t take enough time to agree on the problem. So Brad and I are especially vigilant about that. Because there is really no point to moving into discussing the possible solutions unless and until we have agreement on the problem. Every time we’ve pushed ahead too fast we always have to go back and get agreement on the problem.

This is particularly true when we are talking about problems that the Theory of Constraints (TOC) logistical solutions will solve. So Brad coined the expression “we are going to go slow so that we can go fast”. That approach has helped us to get better, faster results with clients. Then we teach our clients to do this each time a challenge, problem, or opportunity presents itself. And, with a little coaching and guidance, they also get very good at this.

Then we move to agreeing on "what to change to". Now, you would think this should be pretty straightforward once we’ve agreed on the problem, but we have found it’s not that easy. Why?

• There can be multiple solutions that would work or we think there are multiple solutions that could work.
• People are only comfortable with solutions which they are familiar with and have intuition around.
• We don’t know what we don’t know.
• The Theory of Constraints solutions are often counterintuitive, the opposite of what most people do now, and most people have no familiarity or intuition around them.

So you can see, if the solution is to implement our Velocity Scheduling System for scheduling job shops (based on Goldratt’s Theory of Constraints and Simplified Drum Buffer Rope) we may get some push back (aka You want me to do WHAT?) even AFTER we have successfully agreed on the problem.

In fact we’ve had some job shops suggest that we must have been hiding out in their shop when we wrote "The 9 Challenges to Scheduling Jobs Shops and Why Your Schedule is Dead on Arrival".

That is the highest compliment someone can pay and we have clearly agreed on the problem. Then those same companies argue and resist every step of the way during implementation. This was super frustrating until we learned how to get them to agree on "what to change to".

So how do we get the key people in a highly custom job shop to do the totally counter intuitive steps of the Velocity Scheduling System? Well, instead of pushing the steps of a system they don’t understand, don’t agree with, and have no intuition around - we build on a previous success.

... next week I'll take you through how we do that.

 What's your experience with getting buy in? Please tell me in the comments of this post.

Theory of Constraints POOGI Part 64 Getting Jobs Through Engineering cont.

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}


Brad: Aren’t customers the real problem? Supplying incomplete information to the engineers, late?
Dr. Lisa: Blaming customers won’t solve the problem, although what you say is often true and they are a large source of variability.

Brad: So what is the real problem, and what is the solution?
Dr. Lisa: The real problem is how engineers do what they do. (It’s typically NOT that we need more engineers.) But it isn’t just the engineers, it is all of us. It is how projects are managed. We allow some bad assumptions about the best way to manage projects significantly deteriorate our project performance. It is true everywhere around the world.

Brad: For example?
Dr. Lisa: For example, the idea that there is good multi-tasking. Multi-tasking has a terrible effect on engineering. Engineers must finish projects, and that means they need to 1) know which projects to focus on and 2) work on finishing those, rather than starting all of them. Projects need to flow quickly through engineering. But that is just one example. I have a white paper on the subject called Information Overload Destroyer that can be downloaded at http://www.informationoverloaddestroyer.com/ for additional examples.
Brad: So what is Project Velocity System, and how does it help?
Dr. Lisa: In Project Velocity System Coaching Program, I will take the people involved with managing and doing projects through 10 sessions followed by 10 coaching sessions aimed at getting immediate improvement in project delivery: On time, in scope, and within budget. In other words, we will focus on getting a job ready for manufacturing BEFORE they need it.
Brad: I thought that in project management, if you’re lucky, you only got to pick two of the three. Of course, with a lot of projects, you get one or none. It’s not unusual for projects to be late, with scope sacrificed, and way over budget.
Dr. Lisa: That’s reality without a process, but with the right process, you can ensure that engineering is not and will not starve manufacturing. And this can be accomplished by the end of the Project Velocity System Coaching Program and most often without hiring a single additional engineer.
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Want to improve your engineering and project management performance? Go to http://www.projectvelocitysystem.com/ to learn more and sign-up for the next available program. Want to talk about it? Just give us a call or send an email.

What are the challenges YOU face getting jobs through engineering? Tell me your 2 biggest challenges in the the comment box!

Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI Part 63 Getting Jobs Through Engineering

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}


Brad: It’s been three years since we joined NTMA as National Associate Members. Shortly after we joined, after seeing the benefits Theory of Constraints (TOC) could have for NTMA members, you developed the “Velocity Scheduling System.” It is for scheduling machine shops (and job shops) to help them improve lead times, due date performance, and to reduce the ensuing chaos that results from the 9 Challenges of Scheduling A Machine Shop* they contend with daily. You’ve had 35 small, medium, and very large shops attend—online—with a 100% success rate. Why create a program for engineering?
*You can download that free report here: www.VelocitySchedulingSystem.com/ebook

Dr. Lisa: Many machine shops also cope with problems in engineering. A job comes in, and it goes into the queue. It can be feast or famine. When it is feast, engineers are multi-tasking between hot and red hot jobs, and put the shop under real time pressure when they are late with their designs and prints. They need a good solution, too, so I developed the Project Velocity System, and there is a software package to support it.

Brad: Engineering is like graphic design in printing. When new orders start coming, it is easy to have them pile up, starving the shop. It can be a real bottleneck. And when it is slow, that’s an expensive resource to have idled. Very few other people know how to do their job, and engineers don’t seem to do other jobs well, either.

Dr. Lisa: Yes, that’s exactly what happens. Engineering or design starves manufacturing. And, many of the companies that participated in Velocity Scheduling System went on to create a Mafia Offer with our on-line Mafia Offer Boot Camp. This put even more pressure on engineering because with an outstanding market offer shops started bringing in more NEW business which means more load on engineering.

In addition, even without a Mafia Offer, you typically do not want engineering to be your constraint. Engineering needs the capacity to feed the shop, so the company can meet its sales goals, and maintain short, responsive lead-times with 100% due date performance all of the time.


... to be continued.  Part 64 will continue with Getting Jobs Through Engineering
 
What are the challenges YOU face getting jobs through engineering?  Tell me your 2 biggest challenges in the the comment box!
 
Here's to maximizing YOUR profits (and selling price of YOUR business)!


Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI Part 62 Exit Planning Questions

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Brad: Next, we have a choice. Most business owners have a desire to transfer the business to one or more "insiders", but the business may be worth more and the business owner would make more money sooner if the business was sold to a third party. So, it's helpful to choose one or the other for exit planning. Choosing one initially doesn't mean that you can't change your mind later:

4. Do you know how to sell your business to a third party and potentially pay the least possible taxes?

5. Do you have any plans on how you will transfer your business to family members, co-owners or employees while paying the least possible taxes and enjoying maximum financial security?

Dr. Lisa: And why do you say that transferring to insiders yields less money or takes longer for the business owner when compared to a third party sale?

Brad: Most businesses are not saleable. They are too small, not profitable enough, or have some other issue(s). No business broker or investment banker will waste their time representing a business that buyers won't buy. If a business is valuable enough to be sold to a third party, the process takes time to execute and there are plenty of pitfalls, but business owners that can sell to a third parties usually do. The threshold is somewhere between $5 and $10 million in business value, depending on market conditions and the quality of the company. These business owners cash out, and with proper planning, can still take care of the insiders they want to.

But it is valid to transfer to insiders. The problem is that most family members, co-owners, and employees don't have any money! What is required in this case is an elegant exit plan, because it will be the current and future cash flow of the business that is needed to fund the business owner's exit from the business, in conjunction with the ownership transfer. I find it interesting that rather that selling for maximum value as in a third party sale, transferring for the lowest defensible value is the best way for the business owner to maximize after-tax cash in a transferring to insiders.

Dr. Lisa: Transferring to insiders sounds complicated.

Brad: It doesn't need to be. In either case, a sale to a third party or a transfer to insiders, the business owner needs professional help. But we aren't done with the questions that need answering. The next two are related:
6. Do you have a continuity plan for you business if the unexpected happens to you?

7. Does your family have financial contingency plans if the unexpected happens to you?

Dr. Lisa: In TOC, we say the first rule of management is to "be paranoid". So this has to do with business continuity and personal wealth and estate planning. Are most business owners prepared?

Brad: Some are but most aren't. And even if a business owner did a buy-sell agreement, or estate planning, chances are that was years ago and the documents are out-of-date. Exit Planning requires a team of advisors, coordinated by an exit planning professional. Creating an exit planning roadmap, implementing it over time, and keeping it up-to-date is crucial for the business owner that wants to meet his or her retirement objectives.
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Want to have an Exit Plan? Go to http://www.scienceofbusiness.com/exitplan.aspx and take the first step.
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Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa
(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints for Service Companies

SERVICE COMPANIES! I'm looking for 5 service companies to test our Project Velocity System starting sometime TBD in March. You know the 5 circles demonstration I do in my Maximizing Profitability workshop? -- this is the version for service companies!

It's a combination Goldratt's Theory of Constraints Drum Buffer Rope and Critical Chain Project Management aimed at service companies.

You will get $1000 off the $4995 price and a longer free trial of the software. The software is web based and allows you to coordinate geographically distant resources. If you do project based work, but not super complex (like building airplanes) then you may be a candidiate. Examples include: engineering firms, design firms, marketing companies, software, web design/SEO services, recruiting, internet marketing, and a whole bunch more. If you want to be considered, please reply to this email and tell me a little about your company and why I should choose YOU for this test! To get an idea of how the manufacturing one works, see http://www.velocityschedulingsystem.com/ and this one will be similiar but include software.

Theory of Constraints POOGI Part 61 Exit Planning Questions

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Dr. Lisa: Let me start. We established in our last article that Exit Planning is consistent with Theory of Constraints, Lean and Six Sigma because business owners need processes that will increase profitability and business value. So now, let's help business owners check whether they are ready to exit, or what additional steps they would need to take to be ready.

Brad: First, a business owner needs to understand his or her objectives. Here's the question we need answered:

1. Do you know your exact retirement goals and what it should take in cash to reach them?

Dr. Lisa: Oh, I like it. That's the first step in Theory of Constraints (TOC) as well, understanding the objective. And then design a process to achieve the objective more and more. In a for-profit business, it's usually "make more money now and in the future". I know my answer for question number one.

Brad: Good. Now we need to know where we are in relation to the goal. So next we need to know:

2. Do you know how much your business is worth today, in cash?

Dr. Lisa: That's a much tougher question for me - business worth.  How do you find out?


Brad: It depends. If the business owner is close to exiting, a valuation by a Certified Valuation Analyst is recommended. But if you are just starting the exit planning process, a range of value can be calculated by a qualified CPA, and should be updated annually. Industry "rules of thumb" aren't good enough, and may be misleading. Pay a few bucks and get it done. Next, we need to know:


3.  Do you know the best ways to maximize the income stream generated by your ownership interest?

Dr. Lisa: I know the answer, it's TOC!!! There is no better way to leverage existing resources to maximize profitability now and in the future. Use the Velocity Scheduling System to do more with existing resources, and create an unrefusable offer-a Mafia Offer-to sell the capacity that's revealed.

Brad: Was that a commercial? Not that there's anything wrong with that...

Dr. Lisa: Yes, of course! Theory of Constraints is so powerful and I feel inclined to remind people of that fact. We helped 30 highly custom job shops improve last year -- substancially! A 100% success rate! What else could you have had these shops do with that amount of success?

And, we've had over 70 companies go through our Mafia Offer Boot Camp -- all creating great offers that they can use to sell more and increase the value of their business.

But I digressed. Let's get back to exit planning.

Brad: The answer to question three is where most business owners get stuck both in operating their business and with exit planning. If there is a gap between what you need (question #1) and where you are (questions #2), then you need to know how to close the gap (question #3).

.... to be continued (and completed) next week in POOGI #62

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Want to have an Exit Plan? Go to http://www.scienceofbusiness.com/exitplan.aspx and take the first step.

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Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

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